Worker pensions lose value

Employees have seen nearly one third of their pension savings wiped out in the last year.

Pension analysts said the losses were a clear indication of the scale of the effect that the economic downturn was having on individuals in the UK.

Over £150bn has been lost from defined contribution pension schemes in the last twelve months as a result of steep market falls.

Despite employees and employers making 6.7bn of contributions between October 2007 and 2008, the total value of the schemes has plummeted from £552bn to £395bn.

Those closest to retirement are expected to bear the brunt of the loss. Financial advisers said many could be forced to either accept a smaller pension income or work extra years in order to make up the loss in savings.

Pension consultant Aon Consulting calculated that 3.7m workers save money into DC schemes, which have been eroded by fears of a global recession.

The National Association of Pension Funds appealed for employees to remain calm and remember that pensions are a long term investment and that a vast majority of funds are expected to recover in value in the future.

The majority of those with DC pensions are in funds which alter asset allocation according to the age of the individual. In the five to 10 years before retirement the funds switch into assets such as cash and bonds and away from more volatile assets such as equity. This, according to the NAPF, should reduce the scale of loss felt by scheme members close to retirement.

Workers with defined benefit occupational schemes have not seen the value of their retirement income decrease as their pension is dependant on their final salary, not the value of their individual savings.

However more than three-quarters of defined benefit schemes are closed to new members, and a further wave of new closures is expected as employers seek to cut back on expensive pension obligations.